02-Cost-Terms-Concepts-and-Behavior - Managerial Accounting
02-Cost-Terms-Concepts-and-Behavior - Managerial Accounting
BMANRE
Accounting
V
Review
Cost Terms
Concepts
and Behavior
Basic Cost Accounting Concepts:
• Cost – the amount measured in money, of cash expended or other property
transferred, capital stock issued, services performed, or a liability incurred, in
consideration of goods or services received or to be received.
• Loss – the excess of expenses over revenues for a period. It is also the excess
of all or the appropriate portion of the cost of assets over related proceeds, if
any, when the items are sold, abandoned, or either wholly or partially destroyed
by casualty or otherwise written off
Basic Cost Accounting Concepts:
• Ease of traceability
Direct vs Indirect
• Management function
a. Manufacturing – applied to producing a product
b. Marketing – costs in selling the product
c. Administrative – costs in policy–making activities
d. Financial – costs related to financial activities
Cost Classifications for Preparing
Financial Statements
Product costs include direct Period costs include all selling
materials, direct labor, and costs and administrative
manufacturing overhead. costs.
Sale
Manufactu
Direct Direct
ring
Materials Labor
Overhead
The Product
Assigning Costs to Cost Objects
Direct costs Indirect costs
• Costs that can be • Costs that cannot be
easily and conveniently easily and conveniently
traced to a unit of product traced to a unit of product
or other cost object. or other cost object.
• Examples: direct • Example: manufacturing
material and direct labor overhead
Common costs
Indirect costs incurred to support a number of
cost objects. These costs cannot be traced to
any individual cost object.
Nonmanufacturing Costs
Selling Administrative
Costs Costs
• Relation to product
Prime vs Conversion
Prime Conversion
Cost Cost
Cost Classifications for Predicting Cost
Behavior
Cost behavior refers to
how a cost will react
to changes in the
level of activity. The
most common
classifications are:
▫ Variable costs.
▫ Fixed costs.
▫ Mixed costs.
Variable Cost
A cost that varies, in total, in direct proportion to
changes in the level of activity. Your total texting bill
may be based on how many texts you send.
However, variable cost per unit is constant. The cost per text
sent may be constant at 5 cents per text message.
A measure of what
causes the
incurrence of a
variable cost
Miles Labor
driven hours
Fixed Cost
A cost that remains constant, in total, regardless of changes in
the level of the activity. Your monthly contract fee for your cell
phone may be fixed for the number of monthly minutes in
your contract.
Monthly Cell Phone
Contract Fee
Committed Discretionary
Long-term, cannot be May be altered in the
significantly reduced in short term by current
the short term. managerial decisions
Examples Examples
• Depreciation on • Advertising
Buildings Equipment • Research and
• Real Estate Taxes Development
The Linearity Assumption and the
Relevant Range
Economist’s A straight line
closely
Curvilinear Cost approximates a
Function curvilinear
variable cost line
Relevant within the
relevant range.
Total Cost
Range
Accountant’s Straight-Line
Approximation (constant
unit variable cost)
Activity
Cost Classifications for Predicting Cost
Behavior
Cost Classifications for Predicting Cost
Behavior
Quick Check ✔
os t
d c
x e
a l mi
To t
Variable
Cost per KW
X Fixed Monthly
Activity (Kilowatt Hours) Utility Charge
Summary of the Types of Cost
Classifications
Predicting Cost
Financial Reporting
Behavior
Assigning Costs to
Cost Objects
TRUE or FALSE
The beginning balance in the work in process account was P44,000 and
the ending balance was P39,000. The beginning balance in the finished
goods account was P73,000 and the ending balance was P78,000. Selling
expense was P40,000 and administrative expense was P55,000.
1. Calculate the total prime cost for September.
2. The conversion cost for September was?
3. How much is the total cost of inventory to be presented in the
financial position of the Company?
Problem 4
Some selected sales and cost data for RCR Company are given
below: